Executive Summary 

• Underinvestment in the U.S. housing market has led to a significant supply-demand imbalance, driving home prices higher.​
• Higher home prices/mortgage rates have contributed to deteriorating affordability, forcing existing homeowners to stay put and potential buyers to the sidelines.​
• Lower interest rates could bring down mortgage costs and incentivize new home building, normalizing affordability over time.​
• Housing remains a seller’s market for now, which is likely to persist until interest rates and supply stabilize.​

Shown on the left is the ratio between the number of households in the U.S. and the total supply of housing stock in the U.S., including units that are currently occupied or vacant. Shown on the right is the median selling price of existing single-family homes. Gray bars represent periods of recession in the U.S. ​

• There was a significant underinvestment in single-family housing since the Great Financial Crisis, which has led to a supply-demand imbalance.
• This has been a contributing factor to rising home prices, as the median price of a single-family home in the U.S. has risen considerably over the last ten years.​

Home ownership costs are extended relative to household incomes for new buyers

Data shown in the left panel is the ratio between the U.S. median home price and the median household income. Data shown in the right panel is the all-in cost for a buyer of the median priced home in the U.S., assuming a 30-year fixed mortgage rate with 20% down payment, divided by median household income. Gray bars represent recessionary periods in the U.S.

• While somewhat off their recent highs, the ratio of median home prices to household incomes remains elevated.
• Measures that account for the all-in costs of purchasing a home (i.e., cost of home and mortgage rate) also remain elevated near multi-decade highs.​

Lower rates could bring down mortgage costs and incentivize new home building

Shown on the left is the 30-year fixed mortgage rate for new loans in the U.S. Shown on the right is the National Association of Home Builders (NAHB) Housing Market Index on a seasonally-adjusted basis, which is designed to gauge homebuilder sentiment for single-family home construction in the U.S. Gray shaded regions represent periods of recession in the U.S.

• Mortgage rates remain high, but they could fall if monetary policy begins to ease, potentially improving affordability.
• Lower rates could also incentivize additional building activity – homebuilder sentiment has remained downbeat in part due to higher costs for financing new building projects.